Gasoline drops to under $3 on Oahu

The national average is $2.75 with Hawaii still the state with the most expensive gas

For the first time in more than a month, gas prices have dipped below $3 a gallon at various locations on Oahu.

Some retailers began lowering prices as early as Saturday, two days ahead of this week's 44-cent drop in wholesale price caps set by the state Public Utilities Commission.

Prices at Costco Wholesale Club in Kakaako were at $2.99 a gallon yesterday, while other stations went below the bulk retailer's price. Kahala Shell set yesterday's price at $2.98 a gallon for regular, while Lex Brodie's in Kakaako and Waipahu sold at $2.95 a gallon.

Lines developed there and at other locations as word of lower prices spread.

"If it keeps up like this, I'm probably going to have to hire off-duty police officers to control it," said Bill Gray, marketing director for Lex Brodie's, who said he set the price after checking prices at local competitors. The strategy is an offshoot of a promotion that the station has been doing on Fridays.

Gray said he hopes to be able to offer the lowest price on gas at least one Friday every month.

"We'll just have to play it by ear and see how we can do it," he said.

Bill Green, former owner and now consultant to Kahala Shell, said the station's tanks were near empty early yesterday, and owners were fortunate to be able to get a new delivery early enough to post the lower price by 9:30 a.m.

"Ever since we've changed the price, it's been constant," Green said as a steady stream of customers queued at the pumps.

Among them was Lawrence Lentz, 49, of Aina Haina, who said he looked at two or three other stations before stopping.

"This is definitely the cheapest by about 50 cents," he said. Two stations just down Waialae Avenue from Kahala Shell priced regular at $3.49 and $3.42 a gallon yesterday.

The state's one-of-a-kind gas price cap law, which requires the Public Utilities Commission to set a maximum price for wholesale gas sales based on an average of three mainland markets, took effect Sept. 1.

Since then, dealers have had to adjust to larger-than-usual swings in the maximum price of wholesale gas. The caps went up as much as 72 cents in the first two weeks and dropped by as much as 50 and 44 cents in subsequent weeks.

Prices at the retail level are not governed by the price cap, leading to different strategies among dealers, according to analysts. Some have maintained higher prices in order to sell off supplies that were bought during periods when the price caps were higher. Some have risen and fallen along with the cap, while others have maintained a steady price anticipating the large price swings.

Supporters of the law say it has empowered consumers like never before and brought Hawaii's prices in line with mainland markets at a quicker pace than in the past, when island prices were slow to match downward trends in mainland prices.

Opponents say the law has artificially tied island prices to markets that otherwise would have no impact on Hawaii's oil market because the state's two refiners get most of their product from Asia and Alaska.

"Why should we have to be worrying about what the prices are going to be from week to week?" said Kahala Shell's Green.

The $2.98 price was a penny higher than projections calculated last week by the Star-Bulletin, which assumed wholesalers charging up to the maximum allowed and dealers taking a markup of 12 cents.

Across Honolulu the average for regular was $3.45 a gallon, according to AAA's Fuel Gauge Report.

The statewide average, which has been the highest in the country since mid-September, remained there yesterday at $3.52 a gallon, AAA said. Hawaii was the only state still above the $3 mark.

The national average of $2.75 a gallon was 2 cents lower than the previous day.

Preliminary calculations show next week's price caps are likely to be a few cents lower.

The price decreases come just as analysts and markets have started reacting to yet another storm threat to oil facilities in the Gulf of Mexico.

Crude-oil futures rose more than $1 a barrel yesterday on concerns that Tropical Storm Wilma, which formed in the Caribbean, could grow into a hurricane and threaten Gulf Coast facilities still recovering from Hurricanes Katrina and Rita last month.

After surging above $70 a barrel in late August, oil prices have pulled back in recent weeks, although there are plenty of concerns about the pace of recovery following Rita and whether supplies will be adequate as demand for heating oil increases.

"The market is on edge; it's looking for directions," said Victor Shum, energy analyst at Texas-headquartered Purvin & Gertz in Singapore. "There's a lot of volatility now, which is characteristic of a tight supply situation."